Investor confidence takes a hit

By CNNMoney.com staff


NEW YORK  (CNNMoney.com) -- U.S. futures and European shares fell sharply early Wednesday after Germany announced restrictions that prevent traders from betting against some government debt securities and financial shares.

Germany's DAX lost 1.7%, the FTSE 100 in Britain fell 1.7% and the CAC 40 in France declined 1.9% in morning trading in Europe.

In the United States, Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were all lower.

Futures measure current index values against perceived future performance and offer an indication of how markets may open when trading begins in New York.

German trading ban: Germany's financial regulator announced late Tuesday a ban on so-called naked short sales of debt securities issued by euro zone countries as well as the country's 10 leading financial firms.

Short sellers bet that the value of an investment will fall. Traditional short sellers borrow the security with the aim of selling it, then buy it back at a lower price, hoping to pocket the difference.

In a "naked" short sale, however, investors short the investment without actually borrowing the shares or bonds, making it much easier to drive down their value.

The restrictions will apply until March 31, 2011, the regulator BaFin said in a statement.

Economy: In addition to mulling the German trading ban, investors in the United States showed little reaction to the monthly report on consumer inflation.

The U.S. Bureau of Labor Statistics reported that the consumer price index slipped 0.1% in April. The core CPI, which excludes volatile food and fuel prices, was flat.

Economists had expected the CPI to edge up 0.1%, according to a consensus forecast from Briefing.com. The expectations were the same for the core CPI.

They'll also be looking to the minutes from the Federal Reserve's latest policy meeting, which come out at 2 p.m. ET.

The weekly crude oil inventories report is also due in the morning.

Companies: Target (TGT, Fortune 500) reported Wednesday that net earnings for its most recent quarter were $671 million, up from $522 million in the year-ago quarter. The retailer also reported earnings per share of 90 cents, up 30% from 69 cents in the same quarter last year. This fell just short of the 91 cents EPS expected by a Thomson Financial's analyst consensus.

Asian markets: The German trading ban rattled investors worldwide. The slump in European markets followed losses in Asia, where Hong Kong's Hang Seng tumbled 1.8% and Japan's Nikkei finished the session 0.5% lower.

Dollar and commodities: The euro partly pulled out of its slump, after hitting a four-year low on Tuesday. Against the shared currency, the dollar fell 0.5%. The greenback was down 0.3% on the British pound and fell 1% versus the Japanese yen.

U.S. light crude oil fell 89 cents to $71.81 a barrel. COMEX gold for June delivery was down $6.70 to $1,207.90 per ounce.

Bonds: Treasury prices were higher early Wednesday, pushing the benchmark 10-year note's yield down to 3.36%. Bond prices and yields move in opposite directions. To top of page

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